How can advisors manage the widening gap between the US and Canadian economies?

Yesterday’s 0.25 per cent cut by the US Federal Reserve puts the US and Canadian central banks fully one percentage point apart going into 2025. This year, driven by a slower economy, cooling inflation, and fears of a real economic decline, the Bank of Canada has been forced to cut rates more aggressively than the US Fed. Those topline numbers reflect a widening gap between the US and Canada, as the economic prospects for our southern neighbours look brighter while Canada appears to be dimming.

For Shiraz Ahmed, it’s a moment of considerable concern. The Senior Portfolio Manager and Senior Financial Advisor at Sartorial Wealth of Raymond James specializes in cross-border work. He outlined how he is managing issues around this widening gap for clients. He discussed the threat of tariffs, the weakening Canadian dollar, and the apparent dearth of leadership now in Canada. He explained, too, where advisors and clients might be able to find opportunities here and why there still might be reason for optimism.

“Even [Fed Chair Jerome] Powell said in himself, it's clear that the divergence of the US from an economic standpoint to basically almost every global peer, is widening, and so their need and requirements to be more stimulatory are becoming less and less required,” Ahmed says. “The US economy is rocking and rolling right now.”

While US markets have come off their highs somewhat, they remain considerably above their start to the year. Ahmed notes that while there may eventually be some kind of pullback in US stocks, the underlying economy is not showing us where that pullback will come from. There is currently no ‘canary in the coal mine’ telling us what might spark a reset.

While helping his clients through this moment, Ahmed sees the Canadian dollar “taking it on the chin.” With CAD now at or near 40-year lows against the USD, there are some tactical considerations that cross-border advisors like him need to be aware of. However, he notes that there can sometimes be a tendency to make short-term decisions when markets move quickly like this, and he says that it can be valuable to maintain perspective.

That perspective is all the more valuable these days as noise about Trump’s tariff threats continue to dominate the news and roil Canada. “I can’t go five minutes without hearing about tariffs,” Ahmed says. His clients, he explains, are concerned about what could happen and the potential devastating impact on the Canadian economy if tariffs as high as the threatened 25 per cent get implemented.

Ahmed has clients whose concerns are coming from a range of factors. Those with business interests on both sides of the border are under obvious threat, but Ahmed notes that none of his clients are looking favourably on the prospect of a trade war.

“No one wins in this situation,” Ahmed says, “And we’re seeing a lot of political turmoil in Canada where we, frankly, have a void in leadership right now. There’s all sorts of uncertainty being baked in for a lot of Canadians.”

For advisors facing these issues Ahmed says that the unknowns are arguably the greatest challenge. For all we know these tariff threats are a bargaining chip, pulled straight from the pages of The Art of the Deal. The reality may be far less devastating than some of the hyperbole might have us think.

Nevertheless, this period leading up to Trump’s inauguration may offer a chance for some small tweaks. While Ahmed believes advisors need to focus on their clients’ strategies and plans, certain decisions like pulling forward a car purchase might be worth considering, especially if the cost of a car might rise due to tariffs.

Economic divergence is not an exclusively negative thing for clients, either. Ahmed says that his team have already been capitalizing on this trend through allocations to US securities. As the US economy has outperformed, its stock market has gone gangbusters. This is a reminder, he says, that Canadian investors should move away from their home bias and look more closely at opportunities in faster growing and more dynamic markets. Its on advisors, in these moments, to provide a sensation of calm and a focus on strategy.

“We need to counsel and coach, as we historically always have… Try your best wherever possible, to take a step back and go through it from a more logical standpoint, and kind of break it down into bite sized pieces, because it can overwhelm even the most seasoned investors and advisors,” Ahmed says. “We're not going to be able to solve this tariff problem tomorrow, and an advisor, has no  ability to contribute to that whatsoever. So control what you can control, don't worry about what you can't, and plan for the worst and hope for the best.”